Collapse of Sam Bankman-Fried’s FTX stirs fears over safety of assets
Author of the article:
Financial Times
Nikou Asgari in London
Published Dec 12, 2022 • 2 minute read
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The entrance of the FTX Arena in Miami, Florida. Photo by Marco Bello/Reuters files Investors are pulling record levels of bitcoin from cryptocurrency exchanges as the collapse of Sam Bankman-Fried‘s FTX stirs fears over the safety of their assets.
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FTX, once the darling of the crypto industry, filed for bankruptcy protection in mid-November after an US$8 billion hole emerged in its balance sheet.
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New chief executive John Ray described a lack of basic risk management and Bankman-Fried has admitted to poor internal controls. Its rapid descent has alarmed investors who keep and trade their assets on other centralized cryptocurrency exchanges, leading to record levels of withdrawals of bitcoin, the most widely-traded crypto token.
FTX failed last month with potentially more than one million creditors, including many who had left assets on the exchange.
Last month, investors pulled 91,363 bitcoin, worth a total of close to US$1.5 billion based on the November average price of around US$16,400, from centralized exchanges including Binance, Kraken and Coinbase. That marked the largest bitcoin outflow on record, according to data from CryptoCompare. It is unclear whether the coins are being sold or moved to private wallets.
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The rush for the exit comes as the price of bitcoin has plunged 64 per cent this year and is currently trading around US$17,000.
Withdrawals in October were also high, at 75,294 bitcoin, as crypto traders pulled their funds following a crisis-laden summer that included the collapse of digital asset lenders Celsius Network LLC and Voyager Digital Ltd.
Rival exchanges have rushed to distance themselves and their practices from the chaos inside FTX in an effort to ease customers’ nerves and limit potential market contagion.
However, the record outflows highlight investors’ wariness of bitcoin as the digital asset industry faces increased scrutiny from global regulators.
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Article content In the first seven days of December, 4,545 bitcoin were withdrawn from centralized exchanges, compared with inflows of 3,846 bitcoin in the same period last year, according to CryptoCompare.
In a sign of the detrimental impact of FTX’s collapse on its once-rival exchanges, credit rating agency Moody’s Investors Service placed United States-listed Coinbase’s bond rating on review for downgrade in late November, citing “two essential revenue drivers,” the increasing likelihood of sustained declines in trading volumes and client engagement.
“Falling crypto asset prices will restrict businesses’ ability to raise funds and depress customer demand,” Moody’s analysts said this week, adding that markedly lower cryptocurrency prices “will deteriorate the credit quality” of centralized finance companies.
“While the bitcoin sell-off decelerates, the damage has been done,” Eric Robertsen, global head of research at Asia-focused bank Standard Chartered PLC, said this week.
He predicted the pain for cryptocurrency investors will continue well into 2023. “More and more crypto firms and exchanges find themselves with insufficient liquidity, leading to further bankruptcies and a collapse in investor confidence in digital assets,” he said.
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